[New York Stock Market] PCE Slows, 10-Year Yield Surpasses 5.3%... Indexes End Mixed

Both Headline and Core PCE Fall Short of Expectations
10-Year Treasury Yield Hits Highest Level Since 2002

Amid the August Personal Consumption Expenditure (PCE) inflation rate in the United States coming in below market expectations, the yield on the 10-year Treasury note hit an intraday high not seen since 2002, resulting in a mixed closing for the three major New York stock indexes on September 30 (local time).

On the New York Stock Exchange, the Dow Jones Industrial Average (Dow) closed at 50,906.05, down 443.87 points (0.86%) from the previous trading day. The large-cap S&P 500 Index dropped 19.30 points (0.25%) to 7,651.54, while the tech-heavy Nasdaq Composite Index rose 63.52 points (0.24%) to finish at 26,861.06.

Inside the New York Stock Exchange. New York, USA - Photo by Yoonju Hwang

The market initially found relief in the softer-than-expected inflation data, but gains could not be sustained as the 10-year Treasury yield set a new post-2002 record high during the session.

The U.S. Department of Commerce reported that the PCE Price Index for August rose 3.4% year-on-year, down from July’s 3.7%. This figure also fell short of the market forecast of 3.7%. The core PCE Price Index, which excludes food and energy, climbed 3.0% compared to the previous year, also slowing from 3.3% the month prior and coming in below market expectations.

Despite moderating inflation figures, Treasury yields climbed. The benchmark 10-year yield topped 5.3% in intraday trading and ended late in the session at 5.298%, up around 4 basis points (1bp = 0.01 percentage point) from the previous day. The 30-year Treasury yield also rose roughly 5 basis points, reaching 5.642%.

Market analysts attributed the rise in long-term yields less to inflation fears and more to robust U.S. economic growth. Rob Haworth, Senior Investment Strategist at US Bank Asset Management Group, told CNBC, "I don't think inflation expectations are surging dramatically," adding, "The market is focused on growth rates."

He further noted that the Atlanta Federal Reserve’s third-quarter GDP estimate remains elevated and that second-quarter growth came in stronger than expected, factors which are driving increases in long-term real interest rates.

Employment data also proved more resilient than anticipated. According to ADP, private payrolls increased by 90,000 jobs in September, surpassing the market estimate of 68,000. The market’s attention now shifts to the September non-farm payroll report, which will be released on October 2. Market consensus is for an 84,000 job increase in non-farm payrolls.

The softening PCE numbers have lowered the likelihood of a Federal Reserve rate hike next month. According to CME FedWatch, the market is pricing in a 35% probability of a 0.25 percentage point hike next month, down sharply from around 51% the previous day. However, markets still see a high probability of an additional rate hike in December.

Adam Hetts, Global Head of Multi-Asset at Janus Henderson Investors, said, "While inflation data was somewhat better than expected today, considering strong employment and GDP figures, it will be difficult to overturn the market's expectation of one more rate hike before the year’s end."

Strategist Haworth explained, "The market still sees roughly a 75% chance of three more rate hikes by the middle of next year," adding, "While inflation is not seen as a completely resolved issue, it no longer appears as urgent as before."

By stock, Nvidia closed up 0.80%, Intel rose 3.74%, AMD was up 0.69%, Microsoft gained 0.77%, and Tesla climbed 0.56%. In contrast, Meta declined 1.84%, SK hynix ADR fell 1.36%, and Micron dropped 0.01%.

This content was produced with the assistance of AI translation services.